S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Is Gold Really Boring? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Is Gold Really Boring? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Is Gold Really Boring? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Is Gold Really Boring? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Is Gold Really Boring? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Is Gold Really Boring? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Is Gold Really Boring? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Is Gold Really Boring? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy

PayPal stock making a sudden turn, earnings breakout?

paypal logo on transparent sign outside of a corporate building

Key Points

  • PayPal stock has been beaten down in the past few months, creating an underperformance gap against the rest of the sector,
  • Management has now devised a plan to spark the turnaround and 'catch up' to the rest of the pack, particularly competitors like Block. 
  • Analysts see the upside in the name, which could be pushed higher on the coming earnings announcement.
  • 5 stocks we like better than Block

The market is currently at a tipping point, whether investors at large want to admit it or not. With the major indices trading at all-time highs, most market participants tend to fall into a hysteria fallacy. This keeps them from considering potential risks or even diversifying their portfolios. Here is where the savvy ones are starting to look for opportunities.

Breaking down the one-year performances between the Technology Select Sector SPDR Fund NYSEARCA: XLK and the broader S&P 500 index, you will notice a gap of 22.9% in favor of the technology sector. However, not all technology stocks are created equal, as not all the names within the space are hitting all-time highs (or even 52-week highs) along with the NASDAQ.

One stock struggling to prove itself as a worthy portfolio addition is PayPal NASDAQ: PYPL; the argument is that this name trades at 70% of its 52-week high price and has also underperformed the bigger technology sector by as much as 69.7% over the past twelve months. Management is now waking up to what needs to be done to close this gap, but more on that later.

Value in plain sight

Considering the internet software sector for this thesis, you can see how PayPal begins to stand out right away against other competitors like Block NYSE: SQ and even the more prominent names like Mastercard NYSE: MA and Visa NYSE: V. Here is how these four names are divided by the market's perception.


Because of their mere size and market share penetration across the globe, Mastercard and Visa have been favored by traders and investors, as shown in their price action for the past year. Both of these giants trade at 99.0% of their 52-week highs and are flirting with making new all-time high prices off this momentum.

The other two names, PayPal and Block, have been punished by the market with their respective 70.0% and 75.0% of their 52-week high prices. This could be due to their smaller sizes of $70.0 billion and $42.0 billion in market capitalization. However, there is a more concrete reason for this behavior.

As these two are not only tied to the activity within consumer discretionary trends, which you can monitor by following the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY, there is a reason for their underperformance. Judging by the decline in the small business sentiment index, independent business and contractor transaction shrinkage may have hurt these payment processors.

Considering that the FED is now pointing to interest rate cuts, which could be coming as soon as May according to the CME Group NYSE: CME FedWatch tool, small business and consumer activity could quickly rebound to bring a massive inflow of investors to these names.

With these tailwinds beginning to form on the horizon to back a bullish thesis for PayPal, management decided to get ahead of the cub and make some changes to the company in hopes of surprising a few analysts and investors during the upcoming quarterly earnings announcement.

Churning profits

Despite the U.S. economy adding up to 353 thousand jobs in the past month, the employment situation report shows that PayPal and other technology stocks have decided to trim the fat. In a realization that artificial intelligence was not as significant a catalyst as markets hyped it up to be.

In the face of this trend, management has decided to cut as many as seven thousand jobs to start February, representing up to 7% of its workforce. While not too alarming, it is still the beginning of a new trend that will directly translate into a potentially bigger bottom line.

Analysts only project a net growth in earnings per share of 13.3% in the next twelve months. However, this current prediction has yet to account for the cut in payroll expenses, which will directly increase productivity while cutting down excess costs in a department that was not pulling its weight.

Comparing PayPal's valuation against its closest competitor, Block, its 11.3x price-to-earnings ratio presents a significantly attractive discount to Block's 23.1x valuation, a 103% premium above it, in fact.

Even analysts understand that the same tailwinds will benefit PayPal and Block, so placing a price target on either will depend on the current valuation and potential upside to catch up to the rest of the tech sector.

Following this logic, you won't be surprised to learn that PayPal has a $73.8 price target, implying a net upside of 18.3% from today's prices. On the other hand, Block analysts only see a 13.3% upside from where it is today, considering its $76.9 price target.

With a new factor in the mix to consider after management implements these layoffs, both analyst projections for earnings growth and price targets could see a potential boost, something to watch out for during their earnings release this week.

→ Gold Could Be Heading for Record Highs - But How to Play It? (From Edge On The Street) (Ad)

Should you invest $1,000 in Block right now?

Before you consider Block, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Block wasn't on the list.

While Block currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

5G Stocks: The Path Forward is Profitable Cover

Click the link below and we'll send you MarketBeat's guide to investing in 5G and which 5G stocks show the most promise.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
CME Group (CME)
4.6133 of 5 stars
$215.00+1.9%2.05%24.24Hold$214.22
Mastercard (MA)
4.5404 of 5 stars
$459.05+1.6%0.58%38.80Moderate Buy$471.85
Visa (V)
4.4026 of 5 stars
$276.76+0.6%0.75%31.85Moderate Buy$290.55
PayPal (PYPL)
4.806 of 5 stars
$57.48-2.0%N/A14.97Hold$70.63
Consumer Discretionary Select Sector SPDR Fund (XLY)N/A$178.67+0.8%0.78%N/AHold$0.07
Technology Select Sector SPDR Fund (XLK)N/A$199.16-0.7%0.65%20.04HoldN/A
Block (SQ)
3.5923 of 5 stars
$64.47-1.9%N/A-137.17Moderate Buy$77.25
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

PayPal a Fundamental Buying Opportunity in 2024?

PayPal a Fundamental Buying Opportunity in 2024?

Investors who held PYPL stock in July 2021 have seen it drop approximately 80%. With the stock now below its 2019 prices, is it time to get in on the stock?

Search Headlines: